Drive for change
03 May 2018
Laura Allen of Trading Apps explores the uncertainty around AI and robotics reshaping the securities finance industry
Image: Shutterstock
At a recent securities finance conference the audience was encouraged to anticipate and embrace change. Several of the sessions implied that artificial intelligence (AI) and robotics will reshape the financing market and drive change. This is a massive claim considering the global securities lending market continues to be a predominately fractured marketplace where many transactions continue to happen the old fashioned way via email, Bloomberg, instant message and the telephone.
From our vantage point it does appear that a great deal of automation has been established within the operational function of the business, such as contract compare and mark to market. Up until recently, a lot less emphasis has been placed on driving automation in the front office. Given the significant rise in multilateral trading facilities (MTFs), the ability to seamlessly connect and auto-trade is becoming increasingly critical.
Over the past 18 months, Trading Apps has experienced a dramatic rise in the number of broker dealer and retail broker clients looking for trade automation and efficiency. Two key areas of interest included introducing technologies to support trade automation via various vehicles, and devising a more efficient and automated process with regards to managing firm wide inventory.
The first ask was solved by the Trading Apps Gateway, which serves as a digital highway between a securities lending business and the various MTFs. The gateway allows the user to:
The second ask, which was to create functionality to manage firm-wide inventory, was tougher. For broker dealers the focus is on return-on-equity, increasing profits and reducing capital consumption. To achieve this, borrowers require technology and tools to centralise inventory.
As with many of our clients and prospects, the process by which this is done today is disjointed, manual, and loaded with inefficiencies. The first task was to provide a platform that can interact with multiple legacy systems to create a centralised view of inventory, from here you can begin to build the tools required to efficiently deploy it.
The goal for most of our broker dealer clients is to manage their firm inventory as efficiently as possible. For many this means covering their shorts with internal longs and distributing the excess inventory in the most efficient and optimal way. Unfortunately, for many, this has been quite a manual and laborious process that takes time and interferes with the higher margin trading activities that the desk ultimately wants to exert time and effort on. The Trading Apps Cross Book Flattener, and its series of related apps is specifically designed to inject automation into a process where it previously did not exist.
The app uses real time data from Trading Apps Inventory Management App or your firm’s inventory management system to determine which books are long or short and it books internal trades according to your internal account hierarchy, with the capability to include/exclude specific books to effect optimal netting. The user can determine the pricing structure to be applied with the ability for the securities finance desk to apply costs, and take a spread across non-related books. And of course, once the app is configured and the trading hierarchies are set, all of this netting will happen automatically and before the trader arrives.
Once the internal netting is complete, the remaining short positions are then automatically fired out to the street and covered through your normal liquidity channels. Any excess longs can be auto returned based upon configurable rules sets and pre-determined hierarchies.
What you’re left with are the sensitive names and higher margin trades that require the expertise and hand holding of a professional.
At Trading Apps we anticipate, embrace and drive change working with our clients and other vendors to create automation. Will AI and robotics re-shape the securities finance market? I’m not sure, but I know that investment in technology will continue to grow as participants look to fulfill prudential liquidity management, regulatory compliance and profitability.
From our vantage point it does appear that a great deal of automation has been established within the operational function of the business, such as contract compare and mark to market. Up until recently, a lot less emphasis has been placed on driving automation in the front office. Given the significant rise in multilateral trading facilities (MTFs), the ability to seamlessly connect and auto-trade is becoming increasingly critical.
Over the past 18 months, Trading Apps has experienced a dramatic rise in the number of broker dealer and retail broker clients looking for trade automation and efficiency. Two key areas of interest included introducing technologies to support trade automation via various vehicles, and devising a more efficient and automated process with regards to managing firm wide inventory.
The first ask was solved by the Trading Apps Gateway, which serves as a digital highway between a securities lending business and the various MTFs. The gateway allows the user to:
- Provide real time availability (with rates) throughout the day
- Send or dynamically respond to borrow requests
- Provide or access liquidity
- Demonstrate best execution
- Significantly increase trading volumes
The second ask, which was to create functionality to manage firm-wide inventory, was tougher. For broker dealers the focus is on return-on-equity, increasing profits and reducing capital consumption. To achieve this, borrowers require technology and tools to centralise inventory.
As with many of our clients and prospects, the process by which this is done today is disjointed, manual, and loaded with inefficiencies. The first task was to provide a platform that can interact with multiple legacy systems to create a centralised view of inventory, from here you can begin to build the tools required to efficiently deploy it.
The goal for most of our broker dealer clients is to manage their firm inventory as efficiently as possible. For many this means covering their shorts with internal longs and distributing the excess inventory in the most efficient and optimal way. Unfortunately, for many, this has been quite a manual and laborious process that takes time and interferes with the higher margin trading activities that the desk ultimately wants to exert time and effort on. The Trading Apps Cross Book Flattener, and its series of related apps is specifically designed to inject automation into a process where it previously did not exist.
The app uses real time data from Trading Apps Inventory Management App or your firm’s inventory management system to determine which books are long or short and it books internal trades according to your internal account hierarchy, with the capability to include/exclude specific books to effect optimal netting. The user can determine the pricing structure to be applied with the ability for the securities finance desk to apply costs, and take a spread across non-related books. And of course, once the app is configured and the trading hierarchies are set, all of this netting will happen automatically and before the trader arrives.
Once the internal netting is complete, the remaining short positions are then automatically fired out to the street and covered through your normal liquidity channels. Any excess longs can be auto returned based upon configurable rules sets and pre-determined hierarchies.
What you’re left with are the sensitive names and higher margin trades that require the expertise and hand holding of a professional.
At Trading Apps we anticipate, embrace and drive change working with our clients and other vendors to create automation. Will AI and robotics re-shape the securities finance market? I’m not sure, but I know that investment in technology will continue to grow as participants look to fulfill prudential liquidity management, regulatory compliance and profitability.
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